The myriad of benefits available to federal employees can often feel overwhelming. While OPM’s website contains a lot of raw information, the sheer volume of documentation and legalese can make understanding what actions to take a big challenge. This becomes even more arduous in retirement.
We frequently encounter healthcare questions when helping federal employees and retirees prepare for their futures. What is available, how much does it cost, does that cost change when I retire and, most importantly, does it even make sense for me?
Below, we’ll take a look at the two primary paths typically available to federal employees after they retire. The details below apply to federal retirees who are pursuing a full retirement, but does not cover all retirement scenarios, such as early and postponed retirement benefits. We highly recommend consulting with one of our federal retirement strategists to determine the right opportunities for your specific situation!
What is the Federal Employee Health Benefits Program (FEHB)?
Federal Employee Health Benefits (FEHB) provides comprehensive health insurance to federal employees, retirees, their spouses, and their dependents. Compared to private sector equivalents, FEHB is far more affordable, as the federal government pays a 70% subsidy on your biweekly premiums. This makes FEHB an especially valuable benefit for federal workers.
The power of this benefit only grows in retirement, in part because the government will continue to subsidize your premiums forever. To take advantage of your federal healthcare as a retiree, you must meet certain requirements. The rules can be somewhat specific and a bit strict, so ensure you’re closely following the proper criteria so as not to lose one of your most valuable retirement benefits. The good news is that, in most cases, retaining your FEHB after separating from federal service is often simple and occurs automatically for most folks.
So what does one need in order to retain their FEHB coverage? Simply put, there are two primary requirements for eligibility:
A federal retiree must have been actively enrolled in FEHB at the date of their separation (see who qualifies for the program here).
Former employees must have been covered by the FEHB program for at least five years preceding retirement (switching healthcare providers is no problem, as long as they fall under the FEHB umbrella).
Those with less than five years of coverage may still qualify if they were continuously covered by the FEHB—or enrolled as a family member—from the first time they qualified to enroll in the program.
If you had a break in service during the five-year period, ask HR to verify your eligibility, as breaks in service may not prevent you from meeting the five-year rule. If a break in coverage occurred due to a break in service, the earlier years of coverage could likely still count. However, if there was a lapse in your coverage because you canceled it, then you would likely not be able to retire with FEHB.
Different rules apply to those with disabilities, involuntary retirement situations, MRA+10 retirements, deferred or delayed retirement plans, and annuity supplement plans, so make sure you’re working with a retirement expert to understand all of the options and how they pertain to you!
What’s the Cost?
While costs between different plans vary, the one you’re specifically enrolled in does not increase simply because you retire. The government will continue to pay their portion of your premiums, and spouses & eligible dependents can maintain coverage well into your retired years. For non-federal spouses to maintain your healthcare coverage after you’ve passed away, make sure to elect at least the partial FERS Survivor Benefit on your pension. If you do not elect a Survivor Benefit and you pass away before your spouse, they will not be allowed to continue your coverage, so this is worth planning for before completing your retirement paperwork.
A common misconception is that FEHB premiums skyrocket in retirement. It feels this way because while you’re working, you pay premiums biweekly for a total of 26 times annually, but in retirement, you pay premiums once monthly from your pension. While the frequency of your payments change, the total amount does not.
Another thing to note is that FEHB programs are evolving. For example, OPM is developing a new healthcare program specifically for Postal Service employees, annuitants, and their family members called the Postal Service Health Benefits (PSHB) Program. This will roll out in 2025 and replace FEHB for Postal folks not grandfathered into the former program While there’s nothing that Postal Service employees need to do about it right now, it’s important that all federal employees stay in the loop about these changes and how said changes can, and will, impact their future plans.
What is Medicare, and What’s the Cost?
Medicare is a Health Insurance Program for Americans 65 years of age and older, people with certain disabilities under 65 years of age, and people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant). It’s broken into four parts:
Part A (Hospital Insurance). This covers items such as inpatient hospital care, critical access hospitals, skilled nursing facility care, some home health care, and hospice care. Most federal retirees do not pay a monthly premium for Part A, as the Medicare tax deducted from your biweekly paycheck typically pays for this benefit in retirement. There’s no reason not to pick up Part A once you turn 65, as you won’t incur any costs for doing so.
Part B (Medical Insurance). This covers items such as doctors' services, ambulance services, outpatient hospital care, x-rays & laboratory tests, and other outpatient services and medical services Part A doesn’t cover. Those who pay for Part B typically see premiums withheld from their monthly Social Security checks. The “standard'' Part B monthly premium amount in 2022 is $170.10, applicable to individuals with annual income less than $91,000 or couples with a combined annual income of less than $182,000 a year (according to your 2020 tax return). The premium amounts (found here) depend on your income level and change yearly. The CMS announced that 2023’s premiums received a small reduction compared to 2022.
You do not have to pick up Part B when you turn 65 if you do not want to, but for every year that you wait past your initial eligibility, you will pay an additional 10% late enrollment penalty and that penalty will permanently impact your premiums. The one exception is for federal employees still actively working for the federal government after age 65. As long as you enroll in Medicare Part B within 8 months of your federal retirement date, you will not face any late enrollment penalties of any kind.
Part C (Medicare Advantage). Medicare Advantage describes various private, supplemental health options available to eligible participants. The prices vary by plan, but typically speaking, the vast majority of federal retirees do not need a Medicare Part C because FEHB effectively serves as your Medicare supplemental coverage once retired, plus a lot more.
Part D (Medicare prescription drug coverage). Many Federal retirees may find it unnecessary to enroll in the Medicare drug program, as FEHB plans on average have equivalent prescription drug coverage to Part D. However, it can still be useful to dive deeper into the drug benefits Medicare is offering, particularly if you require specialty prescriptions that may not be sufficiently covered under your current care. Under this program, private companies charge an additional monthly premium to provide Medicare Prescription Drug Coverage. Prices will vary by where you live and the type of plan you enroll in.
Once you reach Medicare age, it’s worth re-evaluating your FEHB coverage. If you’re still employed while enrolled in both, FEHB remains your primary provider and Medicare is secondary. Once you retire, they flip. Because FEHB is such a phenomenal deal in retirement, the question most feds have to ask themselves is what types of Medicare do I need in addition to my federal healthcare? While the amount of Medicare you’ll need will vary based on your health status and goals, it’s nice to have your FEHB as backup if any healthcare costs exhaust Medicare’s payout. Some FEHB plans work with Medicare better than others, and some even offer reimbursements for a portion of your Part B premiums. So we’d recommend speaking with a federal retirement specialist prior to making any decisions.
What should I do?
While we want to provide you with the tools and information you need to make sound decisions on your financial future, the truth of the matter is that everyone’s situation is unique. What works for one person may not work for another, so there’s no real cookie cutter solution. Our advice? Consider booking an appointment with one of our teammates to help you navigate the craziness and ensure you’re setting yourself, and your family, up to take advantage of the benefits available to you for a happy, healthy, and financially secure future!